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Ingersoll-Rand PLC  (NYSE:IR)
Q3 2018 Earnings Conference Call
Oct. 24, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. Welcome to the Ingersoll-Rand's 2018 Q3 Earnings Conference Call. My name is Julie and I will be your operator for the call today. The call will begin in a few moments with the speaker remarks and then a Q&A session. All lines will remain on mute for the duration of the call. (Operator Instructions)

And with that, I would now like to introduce Zac Nagle, Vice President of Investor Relations. Zac, you may begin.

Zac Nagle -- Vice President of Investor Relations

Thanks, operator. Good morning and thank you for joining us for Ingersoll-Rand's third quarter 2018 earnings conference call. This call is being webcast on our website at ingersollrand.com, where you'll find the accompanying presentation. We are also recording and archiving this call on our website.

Please go to slide two. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Please see our SEC filings for a description of some of the factors that may cause our actual results to differ materially from anticipated results. This presentation also includes non-GAAP measures, which are explained in the financial tables attached to our news release.

Joining me on today's call are, Mike Lamach, Chairman and CEO; and Sue Carter, Senior Vice President and CFO.

With that, please go to slide three, and I'll turn the call over to Mike. Mike?

Michael Lamach -- Chairman & Chief Executive Officer

Thanks, Zac, and thanks to everyone for joining us on the call today. Please go to slide three, let's begin with a brief review of the fundamental elements for business strategy that underpin our quarterly results and create value for our shareholders.

First, our global business strategy is at the nexus of environmental sustainability and impact. The world is continuing to urbanize while becoming warmer and more resource constrained as time passes. We excel reducing the energy intensity of buildings and industrial processes, reducing greenhouse gas emissions, reducing waste of food and other perishable goods, and we excel in our ability to generate productivity for our customers, all enabled by our technology. Our business portfolio creates a platform for the company to consistently grow above average global economic conditions aided by the strong secular tailwinds I've outlined.

Second, our business operating system is designed to excel and consistently delivering strong top line growth, incremental margins and free cash flow. And lastly, over the years, we've built an experienced management team and a high performance winning culture that makes our performance sustainable. But combined with our dynamic capital allocation strategy, we have a differentiated business model that drive strong shareholder returns over the long term.

Moving to slide four. Exiting Q3 and moving into Q4, we continue to execute well and are on track to exceed the guidance we outlined for investors on our Q2 earnings call. First, our end markets remain healthy and we have continued to deliver excellent growth in bookings and revenues in both our climate and industrial segments. Additionally, our growth continues to be broad-based across virtually all businesses, products and geographies globally and services growth continues to be especially strong.

Second, our leverage and profitability are improving as we are effectively managing all elements of the P&L to deliver results. In the third quarter, we achieved our second half 2018 leverage target of approximately 25% with strong volume and effective management of our price versus material cost and productivity versus other inflation metrics. We saw good margin expansion across the business led by the industrial segment and healthy margin expansion in our commercial and residential HVAC businesses.

The second half of the year has become increasingly inflationary, since we updated our guidance in July. We are embedding the impacts of additional material and other inflation, tariffs and the knockout effects of tariffs into our forecast. In spite of this impact, we expect to continue to effectively manage these costs as we have in the second and third quarters and maintain our guidance of approximately 25% leverage for the fourth quarter. We have raised our full-year adjusted earnings per share guidance to between $5.55 and $5.60, up from approximately $5.50 for fiscal 2018.

In October, our Board of Directors approved a new share repurchase authorization of $1.5 billion, bringing our total available authorization to approximately $1.9 billion. This reflects continued confidence to our ability to generate strong free cash flows going forward and gives us increased capacity as we execute our dynamic capital allocation strategy.

2018 is shaping up to be another strong year for us. As we move through the fourth quarter, visibility into 2019 is also improving. Based on virtually everything we're seeing, our major end markets look poised for another year of good growth. Strong bookings in 2018 are also setting us up with a solid backlog picture heading into 2019.

And finally, we're managing material and other inflation in tariffs, enabling us to drive solid leverage through the P&L and further expand margins. We expect to use the same processes and tools in our business operating system to manage these risks in 2019.

In summary, we're executing our strategy well and this is enabling us to deliver differentiated performance in 2018. The second half is progressing consistent with our expectations and we plan to close out the year in a strong note. Looking forward to 2019, we're expecting another good year for our industry and particularly for Ingersoll-Rand.

Please go to slide number five. The third quarter was highlighted by continued strong growth across the Board as indicated by the positive signs on the chart. Enterprise organic bookings and revenues were both up double digits. Climate led the way with organic bookings and revenues of 12% and 10% respectively. Industrial was also robust with organic bookings and revenues up 7% and 9% respectively. These results reflect continued strong execution of our business strategy, capitalizing on healthy end markets.

The one minus on the chart was a bookings decline in Commercial HVAC in the Middle East, where orders can be lumpy and there were a couple of large orders in the third quarter of 2017 that did not repeat in 2018. European HVAC orders continue to be strong in the quarter.

Please go to slide number six. The next two slides provide insights and additional color into the key drivers behind the chart on slide five and how we're thinking about the markets for the remainder of the year and into next year. In Commercial HVAC, we're seeing sustained growth globally in both bookings and revenues with good growth in both services and equipment. North America growth was strong with continued gains in services, contracting controls and equipment. Institutional growth was particularly strong, led by the education markets.

As we discussed on slide five, Europe Commercial HVAC remains strong with solid growth across the Board in both services and equipment. China HVAC growth continues to outpace the market. Weakening economic indicators in China do not appear to be impacting the HVAC markets to-date. Other markets in Asia continue to be mixed as they have been all year. Our outlook for global Commercial HVAC remains healthy and key economic and market indicators largely support our view with increasing visibility into 2019.

Turning to Residential HVAC. Bookings and revenue growth continue to be strong. Replacement market is where the majority of our sales are derived, should continue the strong growth in the quarter and this is expected to continue through the remainder of 2018 and into 2019.

Please go to slide number seven. Our Transport Solutions business continues to be globally diversified and resilient. We've seen good order growth for North America trailers in 2018 and the estimates for market revenues has improved for the beginning of the year as well. The Americas Commercial Transportation research company also known as ACT is taking their forecasts for North America refrigerated trailer shipments to 43,700 units, which represents approximately 3% growth over 2017. Our capacity to ship refrigeration units exceeds the industry capacity to supply trailers, so we should have solid backlog heading into 2019.

Auxiliary power unit growth was strong in both refrigerated and non-refrigerated segments. As with North American trailers, backlog will be strong going into 2019 as well. Overall, the Transport markets remain healthy in 2018 and we expect this to continue heading into 2019.

Compression Technologies' growth has been solid, consistent with industrial production and other key leading indicators. In quarter three, we delivered good growth in bookings and revenues in both aftermarket and equipment with particular strength in China. We are seeing some signs of pause with our large Chinese exporter customers, as US-China trade negotiations continue and China economic indicators weaken, it's too early to call what impact this will ultimately have, but we'll continue to monitor the situation carefully.

Overall, we expect to see solid growth broadly across key products, services and markets through the year end into next year, while maintaining optimism that the US-China trade negotiations will come to a favorable resolution.

Small Electric Vehicle bookings and revenue growth were strong, driven largely by continued success of our consumer vehicle. We're also seeing strong growth across our high margin industrial fluid management, tools and material handling businesses.

Now, I'd like to turn over to Sue to provide more details on the quarter. Sue?

Susan Carter -- Senior Vice President & Chief Financial Officer

Thank you, Mike. Please go to slide number eight. As Mike highlighted, Q3 was another strong quarter for us with continued robust bookings and revenue growth, improved leverage, solid margin expansion in both our business segments and 22% year-over-year adjusted continuing earnings-per-share growth. The third quarter was right in line with our expectations regarding how the second half would play out when we provided our updated guidance on our Q2 earnings call, which gives us confidence we'll continue the trend and achieve that guidance with $0.05 to $0.10 of upside on the EPS line or a revised adjusted earnings per share range of $5.55 to $5.60, up from approximately $5.50.

Looking at our third quarter results in more detail. Bookings and revenue performance remain strong with sustained growth in virtually every major product category and geography. Services was once again a standout with a 11% growth, outpacing 9% equipment growth as we continue to focus on our growing mix of stable, high margin recurring revenue streams.

We continue to target free cash flow equal to 100% of adjusted net income for 2018. Year-to-date, we've been able to sustain very high levels of revenue growth across the business at 9% organic for the enterprise. We've been able to maintain this growth in part, because we've appropriately raised our inventory levels to keep up with a robust demand for our products and to meet the needs of our customers. As a result, we're sitting at a higher working capital level at just over 5% of revenue. This is consistent with 2017 and we expect this to improve as we return to a more natural 3% to 4% level for us in the fourth quarter.

We maintain our commitment to a dynamic and balanced capital allocation strategy and to returning 100% of excess cash to shareholders overtime, whether it be through our strong and growing dividend or through share repurchases as we've consistently demonstrated over many years or through value accretive M&A. Through September, we have returned over $850 million to our shareholders in the form of dividends and share repurchases.

In October, our Board of Directors also authorized an additional $1.5 billion share repurchase program, bringing our total available share repurchase authorization to $1.9 billion, demonstrating our commitment to share repurchases as an important element of our capital deployment strategy and giving us good flexibility on how and when we execute the program.

We also continue to have a healthy and accretive acquisition pipeline that present opportunities for value accretive M&A. Our year-to-date spend is approximately $280 million. This spend is primarily related to the ICS Cool Energy acquisition and the Trane-Mitsubishi JV, both acquisitions are performing well and ahead of our initial value creation models.

Please go to slide number nine. As we discussed, Q3 was a strong financial quarter top to bottom. At the enterprise level, we delivered 10% organic revenue growth, 100 basis points of adjusted operating margin improvement and adjusted continuing earnings-per-share growth of 22%. Importantly, we also achieved operating leverage of approximately 25%, which is improvement versus our leverage of approximately 19% in the second quarter and consistent with our guidance for the second half of 2018, as we continue to manage through increasing inflation, new tariffs and other inflation in areas such as freight and wages.

Please go to slide number 10. Focused execution of our strategy and operational excellence drove strong core business operating income contribution in both of our business segments which combined for approximately $0.28 or virtually all the earnings-per-share growth in the quarter. The quality of earnings for Ingersoll-Rand remains high. Net, we had a very clean quarter with strong results across the Board.

Please go to slide number 11. Strong execution drove 100 basis points of adjusted operating margin improvement in the quarter. Price versus material inflation was positive by 10 basis points. Productivity versus other inflation was flat. We're effectively managing tariffs, material cost increases and other inflationary impacts, consistent with our guidance for the second half of 2018.

Please go to slide number 12. Our Climate segment delivered a very strong third quarter with 10% organic revenue growth and 50 basis points of adjusted operating margin improvement. Results were strong across the Board consistent with our expectations.

Please go to slide number 13. Our Industrial business also delivered very strong results with 9% organic revenue growth and 190 basis points of adjusted operating margin improvement. Similar to Climate, the strength in the business was broad-based and it was a very clean quarter. We continue to see strong leverage in our Industrial segment driven by commercial improvements, restructuring returns and productivity improvements.

Please go to slide 14. We remain committed to a balanced capital allocation strategy that consistently deploys excess cash to the opportunities with the highest returns for shareholders. We maintain a healthy level of business investments in high ROI projects which is helping to drive our strong growth in both our Climate and Industrial segments this year.

As we've discussed on prior calls in 2018, we have also increased our capital expenditure investments, primarily related to a number of footprint optimization initiatives and new product development projects. These investments will help us to make a more cost efficient and resilient business.

We maintain a strong balance sheet with significant optionality as our markets continue to evolve. We maintain our long-standing commitment to paying a strong and growing dividend at or above net income growth. We continue to invest in share buybacks when the shares trade below our calculated intrinsic value, and as noted earlier, our Board of Directors approved a new share repurchase authorization of $1.5 billion in October to a total available authorization of approximately $1.9 billion. Year-to-date through Q3, we have returned over $850 million to shareholders in the form of dividends and share buybacks.

Please go to slide 16. One of the main topics of interest is how we are managing tariffs and inflation. We've discussed this topic a fair amount throughout our remarks, so I won't spend a lot of additional time on the topic here. This line gives a good summary of how we are managing all of these associated costs risks that we've included in the presentation for your reference.

Please go to slide 17. A second topic of interest is our visibility into 2019. As Mike highlighted earlier in the presentation, as we move into the fourth quarter, our visibility into 2019 is improving. We expect to continue to have healthy end markets and our business portfolio creates a platform for the company to consistently grow above average global economic conditions aided by strong secular tailwinds. Strong bookings in 2018 should also set us up with solid backlog heading into 2019.

For factoring in the expected impacts from inflation and tariffs into our planning process for 2019 and our objective is to effectively manage these impacts by managing the whole P&L to drive solid leverage as we've done in 2018. We plan to provide full 2019 guidance when we hold our fourth quarter 2018 earnings call in late January.

The last topic is restructuring. We have updated our full-year 2018 guidance for restructuring costs to $0.28, up from $0.20 reflecting recently announced initiatives related to the Company's ongoing footprint optimization which drives operational efficiencies and reduces costs. Until these footprint optimization initiatives were announced, it would have been premature to include them in our estimates.

Now I would like to turn the call back to Mike for closing remarks. Mike?

Michael Lamach -- Chairman & Chief Executive Officer

Thanks, Sue, and please go to slide 18. We believe the company is extremely well positioned to deliver strong shareholder returns over the next several years. Our strategy is firmly tied to attractive end markets that are healthy and growing profitably. Our products and services portfolio is at the nexus of global energy efficiency and sustainability megatrends which provides a tailwind for growth above average economic conditions over the long-term.

Unless you believe the world is getting less populated, cooler and less resource constrained, these secular megatrends will continue to create growth opportunities for Ingersoll-Rand. We have an experienced management team and a high performing team culture that incorporates operational excellence into everything we do. A business operating system and our culture are a differentiated and sustainable competitive advantage.

And lastly, our business model generates powerful cash flow, but we are committed to dynamic and balanced deployment of capital. We have a strong track record of deploying excess cash to shareholders over the years.

And with that soon, I'll be happy to take your questions. Operator?

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from Jeffrey Sprague with Vertical Research. Your line is open.

Jeffrey Sprague -- Vertical Research -- Analyst

Thank you. Good morning everyone.

Michael Lamach -- Chairman & Chief Executive Officer

Good morning, Jeff.

Susan Carter -- Senior Vice President & Chief Financial Officer

Good morning.

Jeffrey Sprague -- Vertical Research -- Analyst

Hi. I was wondering if you would help us out a little bit more with tariffs. I understand that it's included in your guidance, but specifically thinking about this list 3% or 10%, can you give us some idea of what kind of headwind you are overcoming there, and obviously the follow-on thought obviously as then you know going to think about what that means if we do go to this 25% and how you take actions against that?

Michael Lamach -- Chairman & Chief Executive Officer

Jeff, everything we know on -- was 1, 2 and 3 and 232 combined would have been a headwind for 2018 of around say $30 million, probably a little bit less than $30 million, but close to $30 million. And in 2019, it would be an incremental say $80 million. And our view toward that you know is always been, we're going to cover material costs with price, we are going to cover productivity over other inflation. So we did that in Q2, we did in Q3, we think it's flat in Q4.

Price is still building through the system and you're seeing that and we'll see it through any of the engineered systems that we produce in the Company, whether it's HVAC or air compressors into 2019. So I feel like we've got a handle on it, managing the impact of that, can handle that with the strategies that we've had historically in the Company over the last few years.

Jeffrey Sprague -- Vertical Research -- Analyst

Great. Thanks for that. And then separately there's been a lot of talk about consolidation and the like in the industry. Just wonder if you could update us on your thoughts on what your priorities are? What do you think the market's ripe for such a move and what exactly you'd be looking for?

Michael Lamach -- Chairman & Chief Executive Officer

The views haven't changed over the last few years which would be fundamentally at the heart of that. We're in great shape strategically. We don't need to do anything -- anything that we would do. We need to be very compelling from a shareholders point of view. Having said that, you know we played all the game theory that's imaginable on us and clearly know sort of what would make sense for us competitively and how we would react to all of the above. So on that, there's really nothing more to kind of add on that at this point in time.

Jeffrey Sprague -- Vertical Research -- Analyst

All right. Thanks. Solid quarter guys.

Michael Lamach -- Chairman & Chief Executive Officer

Thanks, Jeff.

Operator

Your next question comes from Steve Tusa with JP Morgan. Steve, your line is open.

Steve Tusa -- JP Morgan -- Analyst

Hi, guys. Good morning.

Michael Lamach -- Chairman & Chief Executive Officer

Good morning, Steve.

Susan Carter -- Senior Vice President & Chief Financial Officer

Good morning.

Steve Tusa -- JP Morgan -- Analyst

Just wanted to follow up on Jeff's question, just so we kind of level set ourselves. I guess this year, when all is said and done, your kind of price, material, inflation equation is, I guess kind of like modestly negative here in total, negative 40 bps in the first quarter and then kind of flattish for the rest of the year. Is that correct for the year?

Michael Lamach -- Chairman & Chief Executive Officer

Yeah, fundamentally it was flat for the back half of the year, that's where we think we're going to track as flat to the back half of the year.

Steve Tusa -- JP Morgan -- Analyst

Yeah. So I guess just thinking about that $30 million from tariffs alone, there was obviously some pretty substantial just base inflation that you guys are covering with what like 1% and half of price this year or something like that?

Michael Lamach -- Chairman & Chief Executive Officer

Roughly.

Steve Tusa -- JP Morgan -- Analyst

Yes. So we should think about that $80 million in the context of what was in total inflation, obviously a much bigger number than the $30 million of just the tariff related stuff in 2018, and arguably, maybe that stuff is not as kind of severe on a year-over-year basis in 2019? Is that the correct way to look at it?

Michael Lamach -- Chairman & Chief Executive Officer

Yes, Steve. I think the pricing that we've put in as we contemplated all of this, if anything has changed, it's been a little bit more around some of the retaliatory approach that China has taken to some of the US imports. I think we got a strategy to deal with all that within the planning process. If we had perfect information on input cost for 2019 or if cost didn't change from this point in time, we would target the same 20 basis points, 30 basis points of margin expansion in price over material inflation that we normally would put into effect in the planning process. I believe that's where we'll land in 2019.

Steve Tusa -- JP Morgan -- Analyst

Including the $80 million, correct, that you just talked about and what you know today?

Michael Lamach -- Chairman & Chief Executive Officer

Exactly.

Steve Tusa -- JP Morgan -- Analyst

(inaudible).

Susan Carter -- Senior Vice President & Chief Financial Officer

That's right. So I just wanted to point out that if you were looking at the total impact on Ingersoll-Rand, the dollars that we're talking about the just under $30 million and the $80 million are from the Section 301. So there's also the Section 232 impact that we build in the July guidance which was about $38 million in 2018, and it's roughly $20 million for 2019. So I don't want to lose track of the fact that we were also trying to overcome this Section 232 piece of that in our pricing and our other mitigating actions for the price material cost in equation.

Steve Tusa -- JP Morgan -- Analyst

Yeah. I just want to make sure that everybody, the $80 billion -- anyway, I just want to make sure that I kind of understands like what the kind of all-in dynamics are, because you've covered a lot more than that in 2018 successfully and pricing obviously remains strong. Just one another quick one. On the productivity and other inflation, you talked about, it's been kind of weak so far year-to-date, but you talked about a significant improvement in the fourth quarter. What is driving that significant improvement, is it that something that can carry through into '19?

Michael Lamach -- Chairman & Chief Executive Officer

Yeah, Steve, that's a good point. First of all, thanks for the clarification on the $80 million and support for people who know that we're covering that, we still expect to get 20 basis points, 30 basis points in net of 232, 301 and all of that.

As relates to productivity, it's been the same discussion all year long, which is just the way that productivity projects will load into the year, it will be a substantial increase in the fourth quarter. Some which were larger footprint moves or complexity reduction projects across the company that really bear fruit in the fourth quarter. So it is a step up in the fourth quarter. Those projects are under way, they're implemented, they're defined, it's a pipeline. So it's not that we're hoping that productivity comes into the fourth quarter. We've got the projects that support that estimate.

Steve Tusa -- JP Morgan -- Analyst

Didn't that carry into '19?

Michael Lamach -- Chairman & Chief Executive Officer

Well, we haven't done '19 yet, but the key with '19, just like price per term inflation, what we'll do from a pipeline perspective is look at productivity offsetting all other inflation, anticipating wage inflation, anticipating logistics pressure, anticipating all the 232 stuff coming in still, we'll cover that through productivity. And if you go back again in the operating system of the Company, the question we ask ourselves is, do we have a 125% of what we need to do in the pipeline primed and ready for 2019 and that will be sort of the emphasis here as we exit the year just to make sure the health of the pipeline is going to be at 125%, which historically is what we've done and what we think we can continue to do for sometime into the future.

Steve Tusa -- JP Morgan -- Analyst

All right. Great detail guys. Good execution. Thanks.

Michael Lamach -- Chairman & Chief Executive Officer

Thank you.

Operator

Your next question comes from Steven Winoker with UBS. Steven, your line is open.

Steven Winoker -- UBS -- Analyst

Thanks. Good morning. Nice to see the progress everybody.

Michael Lamach -- Chairman & Chief Executive Officer

Thanks, Steve.

Steven Winoker -- UBS -- Analyst

Maybe just going back, I want to just clarify that 25% operating leverage that you're getting this year, that is inclusive of that flattish price material inflation in the second half or not?

Michael Lamach -- Chairman & Chief Executive Officer

It's all-in, Steve. So we're saying that for the back half of your Q3, Q4, 25% is a good number and that's mitigating anything kind of coming in.

Steven Winoker -- UBS -- Analyst

Okay, great. And maybe just on that $80 million that you just referenced in those headwinds. Can you talk about the base that that's on, in other words, maybe just put that in context of the actual China kind of import volume or dollar volume to the US?

Michael Lamach -- Chairman & Chief Executive Officer

Yeah. Steve, it's probably not in this call, I mean, going to that detail because, we have to separate a lot of what is more opportunistic supplier pricing coming in from what's a direct tariff. That's a very difficult analysis to make. At the end of the day, the analysis of that isn't so important as to know sort of what we think sort of the right number should be and then how to offset that with productivity and price. So it would be difficult to pull out in the call and give you anything reasonable.

Steven Winoker -- UBS -- Analyst

Okay, fine. And then on the resi growth side, are you seeing sort of any direct benefits from kind of other supplier challenges in supplying their channels and can you sort of -- is that a meaningful amount for you guys?

Michael Lamach -- Chairman & Chief Executive Officer

Yeah. We don't really -- as you know, we don't talk about this relative to any other competitor, but it's clear and last quarter was no exception of that. For the past four years, it has been substantial, share gain and margin expansion in the residential business and that continued in the quarter.

Steven Winoker -- UBS -- Analyst

Okay. All right. I will leave it there for later. Thanks.

Michael Lamach -- Chairman & Chief Executive Officer

Thanks, Steve.

Operator

Your next question comes from Julian Mitchell with Barclays. Julian, your line is open.

Julian Mitchell -- Barclays -- Analyst

Hi, good morning.

Michael Lamach -- Chairman & Chief Executive Officer

Good morning, Julian.

Julian Mitchell -- Barclays -- Analyst

Maybe just trying -- good morning. Just wanted to stick to two questions. First question just on the incremental margin point. You have more productivity in Q4, but you're saying the incremental margins stay in the mid-20s consistent with Q3. So just wondering what's moving there? And allied to that, 25% incremental is the right sort of level for the current macro environment as you look out with high tariffs, high cost inflation, high volume growth?

Michael Lamach -- Chairman & Chief Executive Officer

Let me do the second part first and Sue might come back on the first part. But I think with the volatility of the environment we're in today, we've always said that we think that incremental margins should look like gross margins, but we always have guided you all to think about that is sort of 25%, allowing some room for breakage, allowing some room for investment in the business and all the things that create a healthy business for the long run and that's what we're saying here.

So I do think that leverage could go higher, particularly if we saw larger compressors kind of coming back into 2019 is an example, continued mix toward services being higher than equipment, that's certainly supportive of higher leverage as well. But I think with the environment we're in, the volatility we're in, 25% incremental is pretty good performance, I think it's really good performance and I think that is something that we're committed to for the back of the year.

Susan Carter -- Senior Vice President & Chief Financial Officer

And Julian, on the other side of that, the with the first part of your question, it's interesting as we go through the fourth quarter and all of the pieces that you see. So our pricing was in effect as we went through the guidance in July and we are adding in the impact of the additional tariffs that we didn't know in July when we gave that guidance. So you have a little bit of impact there. You have some additional productivity.

But the other part when we think about the overall bridge and those overall incremental margins, we're also continuing to invest in the business. And when I look at fourth quarter spend, we're not trying to cut back any of those good investments in, whether it's new products or whether it's in the footprint in the fourth quarter and so we've guide some good investment spending also in the fourth quarter. Again, it's not an outlier compared to other quarters in the year, but it is slightly higher and we are continuing to do that throughout the year.

Julian Mitchell -- Barclays -- Analyst

Thanks. And then my second question would just be around Industrial segment demand. There seems to be more question marks around the sustainability of the backdrops for it. It sounds like there the only weak spot you've seen is some of those Chinese exporters around large compressors. If you could just confirm that's the case or if there any other kind of watch areas that you're focused on?

Michael Lamach -- Chairman & Chief Executive Officer

Yeah, Julian, let me take your question and expand it to a broader commentary on China just to give a sense for what we think is going on, and of course, we're trying to triangulate this not only with our own customers, but with other companies that are reporting earnings as well.

The Industrial business versus the HVAC business are really two totally different roles right now. Think about China's desire for clean air, clean water and the fact that 15% to 25% of all greenhouse gas emissions happen with HVAC and buildings, compound that with transport refrigeration where you've got a diesel engine powering refrigeration cycle on a trailer or a truck, compound that with process cooling and air compressors going into industrial factories. Anything to do with clean air, clean water and retrofitting the economy, the built environment in China, it's going to be a good business and it might diverge a bit from sort of the narrower industrial economy.

On the industrial economy, what we think we're seeing and this is before bookings, this is sort of the pipeline, this is customer communications and contact that we have. Chinese customers that would have had a bit of a US export model are pausing to understand sort of what the rules of the game are going to be and whether they're going to be in play for the long term. These customers though with that supply are going to point that supply somewhere else in the world eventually. So mid-term, long-term, this excess capacity in China for exporters will find its way to other markets outside the US. I mean, inevitably, that's going to happen. But there is a bit of a pause, I think on that export model from China to the US, you know basis what's happening with current negotiations around tariffs. And so, we're just anticipating that could impact in the short run, some of that, but you know these are customers that make decisions very quickly when there is an opportunity and so it's also something that could change very quickly for the positive.

Julian Mitchell -- Barclays -- Analyst

Great. Thank you.

Operator

Your next question comes from Gautam Khanna with Cowen & Company. Gautam, your line is open.

Gautam Khanna -- Cowen & Company -- Analyst

Thanks. Good morning guys.

Michael Lamach -- Chairman & Chief Executive Officer

Hi, Gautam.

Susan Carter -- Senior Vice President & Chief Financial Officer

Good morning.

Gautam Khanna -- Cowen & Company -- Analyst

Just to disaggregate the climate book into little bit in Q3, first, do you still think that Q2 had a pull forward of about $80 million to $100 million and how much did price contribute to the 10% bookings growth organically in the quarter?

Michael Lamach -- Chairman & Chief Executive Officer

Yeah, our pull-through estimate wouldn't have changed there, it was just really strong across the Board bookings and you really can't find a soft spot. The only one that showed up on the chart was a little red dash which happened to be the Middle East off a really tough comp, but you know everything is extremely strong, whether it's residential, transport, commercial across the world. If you pull apart commercial and look at applied versus unitary versus services, everything strongly in the green there as well.

So the color is good. If you go around the world, I mean, you're seeing nice recovery in parts of Latin America for us. We're seeing of course our performance in Asia-Pacific particularly with what we're doing in China, so all those things are contributing to a strong growth rate, but it's across the Board.

Gautam Khanna -- Cowen & Company -- Analyst

Okay. And price on a net basis in that number, the 12%?

Michael Lamach -- Chairman & Chief Executive Officer

Yes, so price remains strong in Climate, I mean across the Board. Of course, the short cycle inventory in residential or light commercial, very quick there to have price effectivity on the applied longer lead engineered systems that still building through the system. You know of course it's going to be shifting well through 2019. At this point, we build considerable backlog there, as well as building several backlog in the trailer market in North America and in the auxiliary power unit market for North America. So I think when those products ultimately ship in 2018, you can see more price carry forward there as well, but price effectivity in Climate has been strong as I've ever seen it.

Gautam Khanna -- Cowen & Company -- Analyst

One follow-up on your comments on consolidation and just I noticed you underlined balanced allocation of capital on slide four. Mike, should we expect that large acquisitions aren't really part of the plan here, it's going to be more of what you've been doing sort of the tuck-ins. Where do you see any case for something larger than actually unfold?

Michael Lamach -- Chairman & Chief Executive Officer

Yeah, I think maybe the bigger thing to talk about first is just making sure everyone knows that we're not changing the methodology and the discipline we've had around capital allocation for a long time now and you know fundamentally where we can invest organically in the business, we tend to see the highest ROICs and the quickest ROICs and so that's evident with share and margin expansion that we've had over time. We believe in the fact that the dividend should grow at or equal net income over time. So we're continuing to make sure that investors are seeing that come through with announcements that we make on dividends.

Dilution, we'd like to control that. So it's always going to be a little bit of buyback there to control dilution. And then look at the end of the day, it's looking at the available pipeline and if we're seeing that we're able to generate return on invested capital and access the weighted average cost of capital that we're building economic value for the company we've been disciplined about that, we'll continue to do that.

And clearly, we've bought back shares. I want to say we bought back $6.5 billion or 150 million shares since 2011. So that's been a big part of the equation. So we're looking to create long-term economic value. However, we do that through that allocation of capital. We're going to continue to get the same way we've been doing that.

You know bolt-on certainly easy to do and less risk, and as I said to you on the large strategic more transformative things, we don't need to do anything if it was incredibly compelling from an investor's point of view. We would look at that, I'm sure investors will want us to look at that and understand what our role in that could be. But at this point in time, it's all hypothetical and it's not really worthwhile to discuss the details around those things for us.

Gautam Khanna -- Cowen & Company -- Analyst

Appreciate it. Thank you.

Michael Lamach -- Chairman & Chief Executive Officer

Thank you.

Operator

Your next question comes from Josh Pokrzywinski with Morgan Stanley. Josh, your line is open.

Brandy -- Morgan Stanley -- Analyst

Hi. This is Brandy (ph) on for Josh.

Michael Lamach -- Chairman & Chief Executive Officer

Hi, Brandy.

Brandy -- Morgan Stanley -- Analyst

Hi. You mentioned that you've been gaining some share in residential and we know that one of your competitors had a recent outage that would require some share shift in the industry. Is that part of where the share gain came from? And given that it should be a greater impact than 4Q, is that included in your current guidance or could we see some upside on share gain there?

Michael Lamach -- Chairman & Chief Executive Officer

Brandy, we -- about five years ago -- four, five years ago, we did most of the product line and as we entered the opening price point, we modified our channel structure to be able to make sure that we have a product for every home and a channel partner for every product if you will. So all of that has led to a long-term share gain margin expansion story for the company. And then, we just don't talk about the specifics of any given competitor and share shifts between competitors. We would just think it's best for a shareholder that we keep that close to robust.

Brandy -- Morgan Stanley -- Analyst

Okay. That's fair. Thank you.

Operator

Your next question comes from Nigel Coe with Wolfe Research. Nigel, your line is open.

Bhupender Bohra -- Wolfe Research -- Analyst

Hi good morning guys. This is Bhupendra here, filling in for Nigel.

Michael Lamach -- Chairman & Chief Executive Officer

Good morning.

Bhupender Bohra -- Wolfe Research -- Analyst

Can you guys hear me?

Michael Lamach -- Chairman & Chief Executive Officer

Yeah, we do. Go ahead.

Bhupender Bohra -- Wolfe Research -- Analyst

Okay, this is Bhupendra here for Nigel. So just wanted to focus on, I think Sue mentioned about the service strength here in the quarter 11%. Could you give some color from what actually is driving that growth and services, especially the contribution from digital and some software initiatives actually you have in place? Thanks.

Michael Lamach -- Chairman & Chief Executive Officer

Yeah, it's a strategy. It's been a long-term strategy. We have been executing for years to try to drive the mix of the company up from services and go back historically. A decade ago that might look like more like 30% for the Company. And if you look at the service related businesses which would be HVAC, commercial and our industrial air compressor business is much closer to 50% today and for the Company were all into the 40s. So I think that has been a long term strategy. It's not a single event. It's a system of things.

So it's the channel, it's a direct footprint, it's investing in people and in systems and tools because people are hard to come by at these, it's sort of -- technical skill set we've had too and it's been a good investment around technology to help leverage the ability for people to get out and see more customers or to handle things remotely. So a lot of the diagnostic work in the background or the connected buildings or connected equipment has been very helpful to us in that.

And then, of course selling different value propositions, using the data and analytics sort of systems to improve either building performance or industrial process has been well received. And you know one of the fastest growing numbers that we have across the Company is the number of connected buildings or connected assets today, it's a number that every time I reported it's up 500 or a 1,000 buildings or customers the next time I report it. So that continues to be you know a really solid investment for us. We would say digital, but it's more than just digital. It's a whole connected experience.

Bhupender Bohra -- Wolfe Research -- Analyst

Okay. That's a great commentary. Just wanted to follow-up here on the -- you know you guys have given some commentary on 2019 visibility here or likely now. When you look at the backlog, would you be able to comment on how commercial HVAC backlogs actually look by geographical regions. I mean, puts and takes basically going into?

Michael Lamach -- Chairman & Chief Executive Officer

Yeah, its record backlog coming in. What you see here is sort of institutional backlogs are very strong that are continuing. We've talked in the past about large projects flowing through, it's interesting the numbers that we've been reporting all year haven't actually included any what we would think to be large projects. These large projects are still out there. We still think they are in scope for even this year, let alone 2019. And that starts to set up very long term visibility into '19 and potentially even to 2020 on some of these larger projects. So backlog there is great.

Thermo King, it's pretty clear that the industry is under capacitized (ph) for trailers and for tractors, the demand is there. So as soon as a tractor needs an APU or a trailer needs refrigeration unit, we're ready. We were able to meet that demand. So that's a definite backlog build going into 2019.

And then large compressors, we'll wait and see what happens here for the balance of the year. We're coming off a tough comp quarter four of '17 as it relates to large compressors but we'll see how that plays out but that gives us great visibility into '19 as well as large engineered compressors that we sell.

Bhupender Bohra -- Wolfe Research -- Analyst

Okay. Just one more actually, because you brought in the large compressor here. Just wanted to get a sense of China industrial compressor business if you look at that. Do you think the fleet, the margins would be comparable to the fleet average or they would be like the segment average or below that. Just give a sense on (Multiple Speakers) --

Michael Lamach -- Chairman & Chief Executive Officer

They are above -- they are average to above their excellent. They are great. So China is important for the compressor business for us and China support for compressors globally in the market. About half the world's compressors are sold into China. So it's important kind of keep an eye on China. And as I said to you, it's that capacity in China is going to go somewhere, maybe it goes along one belt one road, which is -- which if you think about that might be brilliantly timed, you know in terms of where that capacity may end up. But these customers are aggressive and will make decisions quickly. That capacity will go somewhere but in the short run, you know that's where I was cautioning that there could be a pause in some of that business.

Operator

Your next question comes from Scott Davis with Melius Research. Scott, your line is open.

Scott Davis -- Melius Research -- Analyst

Hi, thank you for fitting me in guys. Good morning.

Michael Lamach -- Chairman & Chief Executive Officer

Hi, Scott.

Scott Davis -- Melius Research -- Analyst

I want to back up a little bit. I mean, obviously the market over the last month or so, see something -- thinks it sees something daunting out there and you guys have come up with pretty darn good quarter, one of the best quarters I think I can remember. How do you reconcile really what -- you've seen homebuilding stocks drop 50%. You've seen anything that touches even non-res construction get hit hard. I mean, how do you reconcile kind of that fear that you see out there with the fact that what you see is still a fairly healthy environment?

Michael Lamach -- Chairman & Chief Executive Officer

When you think about the markets we are serving it, you know again it's 15% to 25% of the world's greenhouse gas emissions are happening from HVAC systems and buildings. And if we've launched technology two years ago in the applied space that eliminates greenhouse gas emissions by 99.9%, that's going to be a great business.

If you think about trailers for the refrigeration cycle running off a diesel engine that can be electrified using again a refrigeration cycle that eliminates 99.9% of those greenhouse gas emissions and you walk -- your industrial plants, process cooling and air. We are center cut for a world looking to reduce greenhouse gas emissions and so I don't know that you can just you know sort of lump us into an industrial business selling machinery. I think you have to look at the businesses we're in, we happen to be in great businesses, with technology, it's differentiated; and a channel, it's differentiated; and a service model, it's differentiated. I think this a long-term great story.

So you know when you see these disconnects in the market, we hope those investors out there saying this is a great entry point in a company like ours that's got great businesses and a track record of executing very well with smart cap allocation sort of supporting all that.

Scott Davis -- Melius Research -- Analyst

That's a fair point. And again, just to back backup a little bit, I mean do you kind of get a sense Mike and Sue that it's easier to get price out there now than it has been in the past, I mean, partially just because of the front page news, the tariffs have been and maybe partially just because the answer you just gave, you know some differentiated technology. I mean, does that feel easier to you guys at least or team easier because you seem to catch up to the price cost curve pretty quickly?

Michael Lamach -- Chairman & Chief Executive Officer

Well, if you think about the engineered systems that could be, you know large applied systems, large air compressor systems, that's where 10% of the cost of the total lifecycle is, the actual purchase price, 90% is the energy, the maintenance, the refrigerants, et cetera used. It's easier if you've got a value proposition that allows customers to see the efficiency advantages, the refrigerant advantages and so on and so forth to get price. So certainly that helps.

But as you get sliding into more of the commodity products, you get in there -- residential HVAC with standard seer levels. This is where operational excellence matters and where the dealer and distributor matter and why it's so important for us to have the best dealers and the best technology and the most cost efficient operating footprint that we can to be able to really survive in that model. So there's mixed models around price, but clearly where you're able to differentiate on technology is an advantage.

Scott Davis -- Melius Research -- Analyst

Sounds good. Okay I'll pass it on. Thank you guys. Good luck.

Michael Lamach -- Chairman & Chief Executive Officer

Thank you.

Operator

Your next question comes from Andrew Kaplowitz with Citi. Andrew, your line is open.

Andrew Kaplowitz -- Citi -- Analyst

Hi, good morning guys.

Michael Lamach -- Chairman & Chief Executive Officer

Good morning, Andy.

Andrew Kaplowitz -- Citi -- Analyst

Mike, so I think you mentioned last quarter that the Chinese HVAC market you sell is growing in the 5% range or so and that Ingersoll is growing at multiples of that. So whether you could tell if the market is still growing at close to that rate and have you been able to actually accelerate your out performance in that market given you now have obviously the direct service model in place for a while but you also talked about that service call through begin to kick in?

Michael Lamach -- Chairman & Chief Executive Officer

Yeah, I think that, you're going to find -- I think you're going to find overtime that HVAC in China -- in the built environment in China might differentiate from sort of the industrial economy in China as it relates to sort of this tariff discussion. The built environment in China is 10 times larger than the built environment in the US. A lot of that environment was built not at highest level of codes, standards or efficiency levels and so enormous retrofit opportunities to go in, make them more efficient and clean the air and doing this.

So I think if that is going to potentially be a good market for a long time independent of what's happening in the narrower industrial economy. This is why we put the strategy in place to do what we did last year and made the investments that we made and we're really pleased what's happening, not only with the penetration into the equipment side of that, but the linkage rates that are happening with services are very high and it's giving us a lot of confidence that -- that one was the right strategy, but the pace at which it's working is faster than what we would've thought. So I feel good about what's happening there and I think we'll continue to outperform in China specifically.

Andrew Kaplowitz -- Citi -- Analyst

Maybe a similar question, North America commercial HVAC, so when you look at that strength, obviously some of the strength is the market itself, but could you give us some more color on your performance of the markets in the sense that, I know you do performance based contracting, your digital capability and these big applied jobs has improved. So have penetration there actually accelerated versus the marketing? So as you look into 2019 and '20, you know that's what sort of results in good visibility, because you're really going to outperform the market pace. Is that what you see?

Michael Lamach -- Chairman & Chief Executive Officer

Well, I mean, if you take $4.5 billion, $5 billion commercial North American HVAC business and you split and set half of it service and half of it is equipment and of the equipment 85% of that is going to be replacement. It's a real opportunity to go create demand around the installed base and go create demand around energy efficiency. What you're finding now in addition to that is the institutional cycle started last year probably in earnest, still I think relatively early to mid-cycle in that and then some of the larger projects tend to happen later in the cycle as it relates to larger campus environments, larger customers that have got more complex solutions to put in place, take more time to kind of get that design engineered and implemented and so I think we enter that phase here in the next year or two.

Andrew Kaplowitz -- Citi -- Analyst

Thanks, Mike. Appreciate it.

Michael Lamach -- Chairman & Chief Executive Officer

Thanks, Andy.

Operator

Your next question comes from Joe Ritchie with Goldman Sachs. Joe, your line is open.

Evelyn Chow -- Goldman Sachs -- Analyst

Good morning. This is Evelyn Chow on for Joe.

Michael Lamach -- Chairman & Chief Executive Officer

Hi, Evelyn.

Evelyn Chow -- Goldman Sachs -- Analyst

Maybe I'll just start on the industrial incrementals, have seen really nice progress on those incremental throughout the year. You know if I think about, sort of, sounds like the mix of bookings with large compressors and service all seeming to grow, seems like you're getting price, what kind of -- are the offsets to get us from the mid-to high 30% type incremental range we're seeing in 3Q down to sort of that 25% number we've talked about for the enterprise?

Michael Lamach -- Chairman & Chief Executive Officer

Well, industrial average is higher than that, right, it's running you know kind of in the high 30s and it'll continue to leverage you know into the 30s throughout the fourth quarter. They're doing it across the board though it's -- they're executing well at the plant and operational level, they're executing well at the service level as well so, you know in the field, and they are investing in the business. And so it's -- the investments really have been relatively substantial, in fact, as you think about what they've been trying to do to upgrade some of the product portfolio last year, you know with that kind of leverage in place.

So they're building it for the long run and I think that this continues to get leverage well north of 30% and we would expect that to lever North 30% in 2019, and we've always said is, these larger compressors if they do come back you know in some point in time, we tend to get very high leverage of those larger fixed costs that we have in place.

Evelyn Chow -- Goldman Sachs -- Analyst

That's great, Mike. And then, you know maybe just turning to the $80 million of tariff related inflation and ways that you might mitigate. Is there any thought on potentially pre-buying some of your inventory instead of letting working capital normalize into 4Q. And then, maybe as an addition to that Sue, if you could provide us any color on how much metal spend you either bought or hedged into 4Q and 2019? That would be great.

Michael Lamach -- Chairman & Chief Executive Officer

I think every time we look at sort of fundamentals of lean versus pre-buying lots of inventory, it comes down to, you want to really run the business as lean as possible and you want to make sure the supply chain is as short as possible. It tends to favor suppliers that are more localized than sort of long distance suppliers and so I think we continue on the journey that we've been on around and leaned throughout the company and look at that. The supply base's extension of our lean efforts there.

So Evelyn, on that front, I don't see is doing any pre-buys other than where there's constraints in the industry. So it is a constraint around semiconductor boards or circuitry or constraints around diesel engines. Those are places that we buy, how to make larger commitments. But for the run of the mill stuff we buy, in the below material, we will continue to run that and as lean as possible.

Susan Carter -- Senior Vice President & Chief Financial Officer

Yeah, and Evelyn, I think when you think about our strategy around purchasing materials and all of that and the impact of 2018 and 2019, we're obviously doing buys each and every quarter for not only the commodities, but some of the Tier 2 components. So if you think about 2019, I would say that you might be 50%, 60% bought or committed for the first half of the year and then less so in the second half of 2019. But I think the more important piece of how we buy, whether it's the commodities or some of our other materials is, I don't think you'd want to assume that because of where things are today that you would go and buy that even if it meant that you were on slightly higher percentage of revenue.

And why I say that is, the tariffs and the whole discussion around inflation is a really volatile equation and you could find yourself buying, because you think it's a great idea, and then all of a sudden maybe something goes away or speculation comes out of a commodity, say, copper and you have a lower price. I think you're better off following a routine, following a process and layering in your materials as you go throughout the year and making sure that you have the right sort of blended rate for the materials that you're buying and that's exactly what we do as we think about that.

And in my comments around working capital and where it goes, the 3.5% to 4% is a really natural level for us to really be able to support on-time deliveries and to support our customers. So while it comes down from Q3 to Q4, it isn't because we're unnaturally forcing it down, that's really just the normal cycle of inventory for us. So if there is an opportunity to have something, that would be different, we'd certainly look at that. But I really think that ratably buying and following our natural processes is the right way to go.

Operator

Your next question comes from John Walsh with Credit Suisse. John, your line is open.

John Walsh -- Credit Suisse -- Analyst

Hi, good morning.

Michael Lamach -- Chairman & Chief Executive Officer

Hi, John.

John Walsh -- Credit Suisse -- Analyst

Hi. So definitely a lot of ground covered and I just want to make sure I understand or maybe put a finer point around the visibility into '19, but we've talked about applied backlog being stronger, service growth, what's going on in industrial around compression. Is there a way to quantify the better visibility you see into '19 as of today versus maybe historically or even last year, it would feel like you would have more visibility just given the way the dynamics are playing out than you've historically had into '19.

Michael Lamach -- Chairman & Chief Executive Officer

Well, I mean the version (ph) of services business is being what it is. I mean, you get more visibility, because you have to believe service is going to continue, and in fact, if there's a downturn and you're going to see service go up as people extend the asset life. So I would think that service growth as it relates to visibility is a better way of thinking about the mix over the long run, that helps.

And then, if you take sort of the equipment and systems businesses, nothing has really changed there other than the fact that you can see the backlogs building and you can understand from a correlation of the metrics that we used to establish the demand forecast that is still tend to be favorable. So between what's in the backlog, what's in the pipeline and the metrics that are before the pipeline that would be the leading indicators that we use and there's different indicators for different businesses and different segments of the business and products even in the business, we're able to feel good about '19, at this point, shaping up. A lot sort of dramatic geopolitical event, a dramatic event that's not seen today, we feel like 2019 shaping up to be a good year.

John Walsh -- Credit Suisse -- Analyst

Thank you. And then, as we think about the energy retrofit business in the US, obviously, that's driven by replacement, the age of the assets if it breaks, energy code or new regulations, but are you seeing any changes around customer demand due to new financing mechanisms as new money enters that market to fund some of these upgrades. Is that helping drive some of this growth or is that not something you're seeing at all yet in the market?

Michael Lamach -- Chairman & Chief Executive Officer

No. The vast majority is going to come through traditional customers financing their own deals, then there's obviously the performance contracting, which lends itself toward institutions that may not have the capacity at all times, plus this is an asset that they can -- it's one of the few assets that an institution has that can have a return.

And if you think about the assets an institution would generally hold, buildings being one of them, it's fortunate that the largest driver of their operating budgets often is going to be utilities and some of that maintenance of those facilities. So that's always a great place that they would use financing in other areas and then use performance contracting as the way of getting facility upgrades and improvements to the facilities. So no real changes though and how customers think about that today.

John Walsh -- Credit Suisse -- Analyst

Okay. Thank you.

Operator

Your next question comes from Rich Kwas with Wells Fargo. Rich, your line is open.

Richard Kwas -- Wells Fargo -- Analyst

HI, good morning everyone. Just a couple from me, Mike. Mike, on the mix for '19, knowing what you know now with your backlog and understanding there's still short cycle stuff in the business you can necessarily predict, but would you say the mix is neutral, better or worse than what you've seen in '18, mix of sales?

Michael Lamach -- Chairman & Chief Executive Officer

Well, we're putting our pieces together now. We haven't taken a look at mix yet, but what I'd say is, it comes back to running the whole P&L, understanding that we want to get leverage EPS growth in the business, cash flow, ROIC to be where it's been historically and we work with each of our businesses to figure out what that looks like, but we don't have an early read on mix. I mean at this point if you're modeling anything, I'd model neutral mix. We wouldn't have any better advice for you at this point.

Richard Kwas -- Wells Fargo -- Analyst

Okay. And then, institutional, I mean, I think you're thinking at probably be a better year '19 than '18, right? So does that end up having -- is that a positive of the mix with service or neutral?

Michael Lamach -- Chairman & Chief Executive Officer

Long run, it's positive, because it's where the service business gets built is on the engineered systems. And then in the short run, you get a little bit of a gross margin hit, but overcome eightfold over the long run with the service business that tails on top of that. So as you're modeling 2019, it's negligible, but it would lean toward a little bit more compressed margin, but as you lean toward the out years, the service starts even in the warranty period, it tends to be a very good story.

Richard Kwas -- Wells Fargo -- Analyst

Okay. And then last one on industrial compressors. Can you level set a spin on service, you noted that is growing outpacing equipment this quarter on orders, but where are you in terms of percentage of revenues on compressor service?

Michael Lamach -- Chairman & Chief Executive Officer

Plus 50%. I mean, it's sort of about half the business.

Richard Kwas -- Wells Fargo -- Analyst

Half the business. Okay. Great. All right. Thank you.

Michael Lamach -- Chairman & Chief Executive Officer

Thank you.

Operator

We have reached the end of our question-and-answer session. I will now turn the call back over to Zac for closing remarks.

Zac Nagle -- Vice President of Investor Relations

I'd like to thank everyone for joining us on today's call. As always, Shane and I will be available to take calls and questions today, and certainly over the next several days and coming weeks. We'll be on the road in New York and in the Mid Atlantic. So we hope to see some of you very soon. Thanks.

Operator

This concludes today's conference call. Thank you for your participation and you may now disconnect.

Duration: 66 minutes

Call participants:

Zac Nagle -- Vice President of Investor Relations

Michael Lamach -- Chairman & Chief Executive Officer

Susan Carter -- Senior Vice President & Chief Financial Officer

Jeffrey Sprague -- Vertical Research -- Analyst

Steve Tusa -- JP Morgan -- Analyst

Steven Winoker -- UBS -- Analyst

Julian Mitchell -- Barclays -- Analyst

Gautam Khanna -- Cowen & Company -- Analyst

Brandy -- Morgan Stanley -- Analyst

Bhupender Bohra -- Wolfe Research -- Analyst

Scott Davis -- Melius Research -- Analyst

Andrew Kaplowitz -- Citi -- Analyst

Evelyn Chow -- Goldman Sachs -- Analyst

John Walsh -- Credit Suisse -- Analyst

Richard Kwas -- Wells Fargo -- Analyst

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